Interview with Noted Economist, Richard D. Wolff: Part One

An professional glimpse into the current economic crisis and deep look at the issues of capitalism itself and their possible solutions in the form of democratic cooperatives.

Interview by: Konstantine Roccas

Konstantine Roccas sits down with Richard D. Wolff, economist at New School University, to discuss a variety of topics, ranging from the current economic crisis, economic prospects for students and young professionals in the coming years, to Neo-Classical (Austerity) and Keynesian economics. The questions lead to an overarching discussion about the systemic problem of capitalism itself and the possible solution in the form of democratic cooperatives.

KR: We are now in the 6^th year of this global recession/crisis. Unemployment is at an all-time high in many European countries, while here in North America youth unemployment continues to steadily rise. All the while corporate profits have exponentially increased with little if any ‘trickle-down’ to the masses.  How did we get to this point and why have both ‘Austerity and Keynesian’ styled solutions failed to address this problem? Is the problem in the approach or is the problem more systemic than we were led to believe.

RW: The short answer is that it is a systemic problem and this problem has eluded both the conventional economic treatments that you may call ‘mainstream’ or ‘neo-classical’ as well as what is called the ‘Keynesian’ approach. What most governments do, is kind of mix the neo-classical approach with the ‘Keynesian’ or ‘Liberal’. It’s rarely an exclusive version of either but rather a mixture of both, or a compromise between the alternative schools as well as their supporters. To say it briefly, both of these approaches are designed to heal a capitalism that has plunged itself into an economic downturn.

Since its birth 200-300 years ago as the dominant economic system, capitalism has always been an unstable system; unstable in the precise sense that it suffers from a business cycle. A constantly recurring cycle of sudden breakdown distinguished by rising unemployment, mass bankruptcies of enterprises, idling of productive capacity [such as] tools, equipment, and raw materials, followed by an upswing. These cycles have never been controlled or overcome. They vary in length and severity. Some are short and shallow, while others such as the one we’re in now are deep and long lasting.

In the United States for example, every President since Roosevelt, has promised that his policies would not only get America out of the current crisis, but it would make sure that we do not face this economic scourge ever again. Every President has made this promise; none have ever delivered on it, including President Obama.

Capitalism’s instability then is endemic, it is systemic and neither Neo-Classical economics with Austerity as its hallmark has solved this problem, nor has Keynesian economics. By now, they don’t even pretend to do that. What they both now hope to do is [shorten] the economic downturn. [So it doesn’t] last as long, [and minimize] the number of people’s lives it destroys so we can get back to ‘prosperity’ as soon as possible. Both of them have been tried in this cycle both here in the United States and Western Europe in terms of the broad economy and both approaches have failed.

Here, in the U.S., Keynesian economics, calls for the government to spend more than it [collects] in taxes as a ‘stimulant’ to the economy. Starting in 2008 and every year since, the Federal Government has done what Keynesian economics has said it should do: namely, spend more money than it raises in taxes by borrowing the difference, hence the hoopla about deficits.

At the same time, it’s austerity because the leading Keynesian economists in the U.S. have said that a ‘proper’ Keynesian stimulus should be much larger and thus the deficit should be much larger than the one that is currently being used to solve the problem. You can then see the power of the conservative or ‘Austerity’ approach as they are constantly shrinking or [blocking] the growth of the stimulus ‘Keynesian’ package to anything like the proportions that the ‘Keynesians’ wish.  In 2013, the combination policy is shifting towards less Keynes and more Austerity as evidenced by the pay-roll tax and the sequester of government spending cuts. Needless to say all of these combinations, [regardless of stripe] have in fact failed. We do not have a broad-based recovery but rather a recovery for the few.

Bank balance sheets have recovered much of the territory lost since 2008/2009 and the Stock market has come a good way back from the depths of 08/09. For the mass of people, [however], nothing of that sort has occurred. Unemployment in the U.S., which was 4.8% in 2007, and reached 10% in 2010 is now at 7.7% which means it’s not even halfway back to what it was in 2007. If you look at the people who kept their jobs they have fewer benefits, less job security and more debt for their children to go to college. By any basic measure of economic well-being the mass of people are still in a depressed crisis stage here in the sixth year of this downturn.

In conclusion, we have a systemic crisis and we shouldn’t even be surprised that policies that avoid even questioning the system, let alone proposing changes to it, have not been effective in overcoming it.

Going by your analysis, what will the future look like for the upcoming generation if things continue down the current path?

The short answer is terrible. Again, I’m not telling the [youth] anything that they don’t already know. Our students here in the U.S., have been going into debt to get a college education on a scale that we have never seen before. It is absolutely unique.

The other thing that is as impressive is the awful job market they face after the debts and the four to five years they spend getting their degree. In other words, their job prospects and their income earning prospects are such that they place the [youth] at a level of very pinched economic circumstances and that’s if  they get a job.

So yes the prospects are very grim and virtually nothing is being done to help this situation. No programs have been created worth anything to ease the burden of student debt and nothing has been done to dramatically improve the job situation.

To give you one example of what could have been done, but what isn’t being done, would be to take the 1930’s – the last time we had a meltdown on the proportions we have today. Here’s what Roosevelt, the President at the time did. He declared on the radio in 1934 words to this effect, ‘If the private sector is unable or unwilling to provide jobs for the mass of Americans numbering in the millions who now need or want to work then there is no alternative but for me to use the power of the government to provide useful, gainful employment. In between ‘34 and ‘41 he did that, creating at least 12.5 million jobs. Either way, the point is made. He created jobs for millions transforming their lives, transforming their ability to maintain their mortgage payments to keep them in their homes, transforming the lives of students going to college to look for an education. All of that was done and made the depression much less worse for the people than it could have been.

It is one of the great shames of America today that not only is there no federal jobs program, but that nobody says one word about it. It’s as if that page of American history, so relevant to debate today had never existed. It’s an attempt to wipe out the past so that we don’t have the debate we ought to have about a federal jobs program that if introduced could in one move make the prospects and conditions for this generation of college students radically better than what it looks to be.

Richard D. Wolff is Professor of Economics, Emeritus, at the University of Massachusetts, Amherst and Visiting Professor at the New School University in New York. With frequent co-author, Stephen Resnick, he has published many books and articles on economic theory, economic history, and alternative economic theories. Their latest is Contending Economic Theories: Neoclassical, Keynesian and Marxian (Cambridge: MIT Press, 2012). Wolff’s recent work (books, articles, speeches, and interviews) critically analyzes capitalism’s severe global crisis since 2007. That work and proposals for solutions are gathered at rdwolff.com and democracyatwork.info.

Konstantine Roccas is an observer of local and international affairs and governance, but also writes about anything else that piques his ire. He enjoys a half kilo of Greek yogurt daily. He writes for the Arbitrage Magazine. More of his work can be found at myriadtruths.blogspot.caand he can be followed on Twitter @KosteeRoccas.